Clipmarks | Rustee's Economics collection

Why the Bailout isn't Working

Mon, 13 Oct 2008 04:45:53 GMT

clipped by: Rustee
clipper's remarks:

Thank goodness Congress approved that bailout. Otherwise, the economy might be tanking.

After the bailout was signed into law on Friday, Oct. 3, investors had all weekend to contemplate its tonic properties but found none.

On Monday, the stock market looked like it had been pushed out of an airplane.

The sheer size and unprecedented nature of the intervention generates a different kind of uncertainty—about how extensively the federal government will immerse itself in the economy from now on. The spectacle of Washington nationalizing private assets is bound to dishearten millions of investors who think that generally, the most helpful economic role for government is staying out of the way.

The rescue surrenders an important principle: that private sector mistakes should be borne by the people who make them. If the bailout means we may all get the bill anytime a company implodes, it will undermine the critical incentives of the market. In the long run, that will not strengthen the economy but weaken it.

Tags: economics, government, economy

Open Letter to the Left

Wed, 08 Oct 2008 04:51:58 GMT

clipped by: Rustee

Clip Source: myslu.stlawu.edu

My friends,

In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation.

In the end, all I can ask of you is that you continue to think this through.

Consider that you may be mistaken.

Explaining it as a failure of free markets faces the obvious truth that these markets were far from free of government.

Consider that government intervention might have led banks and other organizations to take on risks that they never should have.

Consider that government central banks are the only organizations capable of fueling this fire with excess credit.

And consider that various regulations might have forced banks into bad loans and artificially pushed up home prices.

Lastly, consider that private sector actors are quite happy to support such intervention and regulation because it is profitable.

The real problem here is the marriage of corporate and state power. That is the corporatism we both oppose.

The Lure of Socialism

Wed, 08 Oct 2008 04:24:39 GMT

clipped by: Rustee
clipper's remarks: Quoting Bastiat in The Law, 1850.

Clip Source: www.econlib.org

Now this must be said: When justice is organized by law—that is, by force—this excludes the idea of using law (force) to organize any human activity whatever, whether it be labor, charity, agriculture, commerce, industry, education, art, or religion. The organizing by law of any one of these would inevitably destroy the essential organization—justice. For truly, how can we imagine force being used against the liberty of citizens without it also being used against justice, and thus acting against its proper purpose?

Here I encounter the most popular fallacy of our times. It is not considered sufficient that the law should be just; it must be philanthropic. Nor is it sufficient that the law should guarantee to every citizen the free and inoffensive use of his faculties for physical, intellectual, and moral self-improvement. Instead, it is demanded that the law should directly extend welfare, education, and morality throughout the nation.

This is the seductive lure of socialism.

Life, Liberty, Property > Law

Wed, 08 Oct 2008 03:46:42 GMT

clipped by: Rustee
clipper's remarks: From F. Bastiat's book, The Law.

Clip Source: www.econlib.org

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.

If this is true, then nothing can be more evident than this: The law is the organization of the natural right of lawful defense. It is the substitution of a common force for individual forces. And this common force is to do only what the individual forces have a natural and lawful right to do: to protect persons, liberties, and properties; to maintain the right of each, and to cause justice to reign over us all.

But, unfortunately, law by no means confines itself to its proper functions.

The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others.

It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

The Wrong Question

Sun, 31 Aug 2008 07:54:42 GMT

clipped by: Rustee
clipper's remarks:

“Natural capital” (minerals, croplands, etc.) and “produced capital” (factories, roads, and so on) account for less than a quarter of the planet’s wealth. In America, intangible capital — the stuff in our heads, our hearts, and our books — accounts for 82 percent of our wealth.
In large measure our wealth isn’t the product of capitalism, it is capitalism.

Clip Source: article.nationalreview.com

People ask, “Why is there poverty in the world?” It’s a silly question. Poverty is the default human condition.

As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger, and pain, and he died very young, either by violence or disease.

The interesting question isn’t “Why is there poverty?” It’s “Why is there wealth?” Or: “Why is there prosperity here but not there?”

At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own.

Tags: capitalism, wealth, poverty

Aristotle on Mixed Economies

Sat, 30 Aug 2008 07:46:47 GMT

clipped by: Rustee

Clip Source: mises.org

A friend recently commented that he has found wisdom in moderation. He said it seems that truth and goodness are found not at the extremes, but at the place of balance between extremes.

As Aristotle wrote in his Nicomachean Ethics, "Virtue must have the quality of aiming at the intermediate." In Aristotle's examples, it is cowardice and recklessness that are the extremes, courage the middle ground.

My friend went on from this concept to state that he believed in neither socialism nor capitalism, but in a mixed economy — or what he called a "messy middle ground."

The true middle ground is to accept a capitalist system — i.e., avoid the extreme of coercion — and choose personally to care for and about others, and persuade them to do the same — i.e., avoid the extreme of neglect.

Attempting to find a middle ground between coercion and freedom is a bad idea.

Finding a middle ground between coercion and neglect is a good one.

Capitalism is the only system that allows for both of these.

Tags: capitalism, socialism, economics

The Great Depression Hoax

Sat, 30 Aug 2008 07:30:03 GMT

clipped by: Rustee
clipper's remarks:

Are we a nation of whiners, as Phil Gramm put it a little while ago? No, the American public is not whining...More likely, though, Americans are just leaving the whining to pundits and trend reporters. Our problem is not whining. It is persuading young people that, with baby boomers retiring, entitlement programs bulging and the world economy growing ever more competitive, now's the time to roll up the sleeves for something other than tattoos.

For example, India produces 2.5 million college graduates every year (with concentrations in high demand fields - electronics, programming, engineering, accounting, etc.), and approximately 90,000 MBA's. Nothing against tattoos, but I do feel ignorance and apathy are much too prominent in America. Awareness of ignorance is the first step to wisdom.

Clip Source: online.wsj.com

Never mind that GDP is puttering along in positive terrain. Headlines still scream that we're closing in on 1929, not 2009.

Meanwhile, Prius cars are flying off the Toyota lots, even though they cost $3,700 more than a similarly sized gasoline-fired Toyota and it takes 3.5 years to pay back the investment in fuel savings.

In July the jobless rate among college graduates was just 2.4%, drifting up from 2.1% in March. That is miles away from the 1981 recession and, of course, you'd need scientific notation to compare it to the Great Depression

For some, it still feels lousy out there. But lousy is not a technical synonym for recession.

Still, no president, Democrat or Republican, can create prosperity for those who decide to forgo even a basic education.

High schools don't teach what they used to, and so students who don't go to college are left without the skills necessary to compete in a global economy.

Tags: economy, education, media

Suspicion of Capitalism

Fri, 22 Aug 2008 03:31:56 GMT

clipped by: Rustee
clipper's remarks:

What ideas and ideals are needed for freedom to flourish?

History offers no better answer than the American story. Two centuries ago, the Founding Fathers blazed the path to a capitalist future by creating a nation based on the individual's right to life, liberty, property and the selfish pursuit of his own personal happiness.

For the first time, a nation's social system embodied approval of profit-seeking, the lifeblood of capitalism. America's founding principles, all but forgotten today, facilitated the explosive economic globalization of the 19th century and remain our only hope for freedom in the 21st century.

Clip Source: www.forbes.com

So why is the world retreating behind nationalistic walls--even in America, where you might least expect it?

The short answer is this: The expanding economic freedom of the past few decades was primarily a response to the bankruptcy of communism and socialism; it was not based on acceptance of capitalism as an ideal. Without such acceptance, recent political advances--despite the economic success they generated--are vulnerable to the new wave of anti-capitalist measures.

For all of capitalism's astounding accomplishments, the intellectual underpinning sufficient to deflect its critics has never been fully identified or understood.

This is why Barack Obama can get away with belittling the "money culture," his wife can smugly counsel youth to shun "corporate America" and John McCain can brag about working "out of patriotism, not for profit."

Capitalism will remain the world's punching bag until such time as the profit motive is rescued from moral oblivion.

Tags: economics

Economics in One Clip

Thu, 21 Aug 2008 04:04:18 GMT

clipped by: Rustee
clipper's remarks:

One reason that Bastiat's example has power is that it applies not just in one area of policy but all areas. If it isn't true that breaking windows creates wealth, it is not true that government spending and inflating is a boon to the economy. It only ends up draining wealth from the private sector, which is the only source of wealth creation.

Clip Source: mises.org

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items, and the circle of rising prosperity will expand without end.

What's wrong with this scenario? As Bastiat put it, "It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented."

If the broken window really produces wealth, why not break all windows up and down the whole city block?

Tags: economics

Leftist Economic Nonsense

Sun, 17 Aug 2008 00:42:42 GMT

clipped by: Rustee
clipper's remarks:

It was astonishing to hear Maxine Waters openly discuss nationalizing the oil industry. She was talking to the heads of America’s oil companies, and she was a little worked up, so it was also possible to say that it was just one person, speaking impulsively in a moment of anger, and easily dismissed.

What left most conservatives and libertarians staring in slack jawed wonder was when Maurice Hinchey (D-NY) stood before the press and advocated nationalizing the oil refineries. While most have known about the socialist beliefs of the left, what surprised them was the matter of fact manner in which they were suggesting socialist controls over the oil industry.

Finally, the socialist trifecta was complete with Obama supporter Malai Lazu, of the non-profit group Oil Change International calling for “price controls” on Neal Cavuto’s “Your World.” As she simply put it, “When Congress can set prices, Congress can set prices.”

Clip Source: www.allamericanblogger.com

For thousands of years, governments have attempted to set the price of different products with disastrous results.

This was all done for the “salvation of the people.”

Throughout history, it has been shown that price controls are good for creating three things:

Shortages

In the free market, a producer knows what it takes to create a product.

When government enters the picture, they don’t consider the creation cost.

Rationing

The government now enters the scene again and tells people how much of a product they are allowed in a specific time. So, if the Democrats nationalize the refineries and shortages follow, it is likely to see them tell you how many gallons of gas you can have per month.

If the government’s allotment isn’t enough, there is only one place to turn.

Black Markets

The black market is created as a result of the state. Always.

Setting prices on gasoline and oil will not do what the socialists in Congress claim it will do. History shows it never has, and never will.

Tags: economics

No Tax Increase Needed for Social Security, Medicare, Medicaid...

Tue, 12 Aug 2008 02:39:55 GMT

clipped by: Rustee
clipper's remarks:

If Congress were to act responsibly (yes, an oxymoron), it would hold down the growth of spending, as was done in the late 1980s and late 1990s, and eliminate those government programs that do not meet a reasonable cost-benefit test. As has been shown before, such actions would quickly eliminate the deficit.

Clip Source: washingtontimes.com

Many of those who insist that tax increases are needed argue that the entitlement programs will grow more rapidly than the economy and they must be funded. The problem with this argument is that tax increases will slow economic growth, and that no amount of tax increase can fund these programs if they are allowed to continue to grow faster than the economy.

Other countries have solved, or are solving, the social security problem through privatization. The renowned economist, Jose Pinera, developed the world's first, major, privatized social security system when he was labor minister in Chile. The Chilean program has been in effect for 29 years, is fully phased in, and has provided the workers with a rate of return exceeding 10 percent per year compounded, resulting in many Chileans having a very large investment portfolio for retirement. The Pinera system has been so successful that more than 30 countries have now adopted it.

This program would be real constructive "change."

Tags: taxes, government

Cigarette Tax Burnout

Tue, 12 Aug 2008 01:55:36 GMT

clipped by: Rustee
clipper's remarks:

In New York City and State, tobacco taxes have been raised so many times that the retail cost can exceed $9 a pack -- about double the national average. Few budget-savvy smokers in the Big Apple pay that tax. Patrick Fleenor, an expert on tobacco taxes at the Tax Foundation, estimates that there is "now a 75% gap between cigarette sales in the city and cigarette consumption." In other words, three out of four cigarettes are bought elsewhere or are contraband.

In New Jersey, about 40% of the Marlboros and Virginia Slims that are lit up escape the $2.57-a-pack tax. In Washington State, evasion was so rampant that the legislature decided in 2005 to lower the 75% tax on cigars and other tobacco products as a way to raise revenue and help state retailers.

Clip Source: online.wsj.com

Politicians in Annapolis are scratching their heads wondering what happened to all those chain smokers who were supposed to help balance Maryland's budget. Last year the legislature doubled the cigarette tax to $2 a pack to pay for expanded health-care coverage. Eight months later, cigarette sales have plunged 25% and the state is in fiscal distress again.

As House Majority Leader Kumar Barve put it, fewer people smoking is "a good thing." Yes, except that Maryland may be losing retail sales more than smokers. Residents of Maryland's Washington suburbs can shop in nearby Virginia, where the tax is only 30 cents a pack, and save at least $15 per carton.

The Maryland pols are so afraid this is true that they've made it a crime for residents to carry two packs of cigarettes that weren't purchased in the state.

Out-of-state purchases, tax-free Internet sales and a cigarette black market are booming.

Tags: taxes, government, tobacco

More on Obamanomics

Fri, 08 Aug 2008 05:50:45 GMT

clipped by: Rustee
clipper's remarks:

Obama's economic plan also calls for mandating a "living wage." He plans to saddle retailers with a $10 minimum wage indexed to inflation, along with a mandate to provide seven days of paid sick leave to workers.

Obama assumes business owners will just eat the added costs.

Clip Source: www.ibdeditorials.com

Barack Obama the lawyer-organizer could use a crash course in economics.

In arguing for a heavier mix of government, he assumes that capitalism unfairly favors the rich, almost exclusively so, and fails to spread prosperity.

Obama cites data showing a yawning gap between the income of the average worker and the wealthiest 1%. He thinks it's government's job to step in and close it — "for purposes of fairness" — by soaking the rich, among other leftist nostrums.

But such a snapshot comparison would be meaningful only if America were a caste society, in which the people making up one income group remained static over time.

Of course that's not the case.

Few are "stuck" in poverty, or have a "lock" on wealth.

Obama would discover this if only he'd put down his class-warfare manuals and look closely at the IRS' own data.

He also fails to understand how taxes change behavior.

Forget growth and revenues. Let's just punish those "greedy" investors.

Even TV news anchor Charlie Gibson knows better.

Tags: economics, politics, class warfare

New Record Deficit, Same Old Politics

Sat, 02 Aug 2008 06:28:39 GMT

clipped by: Rustee

Clip Source: www.cnsnews.com

Earlier this week the White House announced that the projected Fiscal Year 2009 deficit will be $490 billion, an amount much higher than originally anticipated and also a record for the national deficit. The deficit for the current fiscal year is expected to reach $410 billion.

As usual, politicians and many of the major media outlets explicitly or implicitly have blamed President George W. Bush’s tax cuts for much of the problem.

The problem is not his tax cuts, though. Bush’s tax cuts stimulated tremendous economic growth. History and most economists inform us that a reduction in the tax burden almost always stimulates growth.

The problem is that our elected officials lack the fortitude and wisdom to make the necessary cuts in spending that budget realities demand.

Congress must make some difficult decisions and cut the Federal Government’s expenditures.

Tags: taxes, economics, government, politics

A Democrat's Good Idea

Sun, 13 Jul 2008 18:41:21 GMT

clipped by: Rustee

Clip Source: online.wsj.com

It's worth paying attention when a Democrat in Congress introduces a bill to liberalize American trade. The head-turner is New Jersey's Bill Pascrell, who wants to lower import duties in an election year.

To stay competitive, manufacturers need to use parts from around the globe, based on quality and price. However, U.S. manufacturers using imported components pay a tariff, which isn't paid by their competitors in countries that have free-trade agreements with the U.S.

For example, a car made in Canada or a television in Mexico can include some parts made in Asia. The end product still enjoys Nafta's full duty-free benefits in all three markets, and many of our free-trade partners allow components to enter their countries duty-free, so their manufacturers can produce high quality goods at competitive prices.

This is the playing field Mr. Pascrell wants to level.